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Notes/Observations

Eurogroup meets and again tries to finalize the 2nd Greek bailout review

Recent polls predicting a narrower-than-expected win for PM May in June election (items in recent party manifesto cited)

Socialist Party re-elects Sanchez as its leader(opposition), seen as a thorn in PM Rajoy's policies

Bi-annual OPEC meeting on Thursday with production cut agreement likely to be extended

Overnight/weekend:

Asia:

North Korea leader Kim Jong Un said to have supervised a test firing of a ballistic missile

Japan chief cabinet Seg Suga: Strongly protest North Korea missile launch as intolerable and a clear violation of UN Resolution

US Sec of State Tillerson: Will continue to apply both economic and diplomatic pressure to North Korea after ballistic missile launch

Europe:

ECB's Weidmann (Germany): ECB will need to show backbone and not back off when inflationary pressures rise in Euro Zone. Reiterated Council view that expansionary policy remains justified for now

German Finance Ministry Monthly Report: Domestic economic upswing to continue after 'strong' Q1, but with less momentum. Maintained 2017 GDP growth forecast of 1.5% and 1.6% for 2018.

Germany's Foreign Minister Gabriel said to favor debt relief for Greece. Country has been promised debt relief over and over again if reforms are carried out; we must stand by this promise and not fail due to resistance from Germany

EU's Moscovici: Very close to an overall agreement for Greece

UK Brexit Min Davis: "No deal" with EU threat is genuine, Britain is prepared to see it through; still thinks an agreement is most likely outcome

UK May Rightmove House Prices M/M: 1.2% v 1.1% prior; Y/Y: 3.0% v 2.0%e

Recent polls on upcoming UK electiosn (to be held Jun 8th); Labour making up some ground following release of Conservative Party election manifesto

Americas:

President Trump's budget said to cut entitlements by $1.7T. Report notes the budget proposal won't reform Social Security or Medicare (in line with his campaign promise) but it will make large cuts to other entitlement programs.

US to sign $110B of military contracts as part of memorandum of intent to support Saudi defense

Council of Brazil's Order of Lawyers (OAB) voted favor of an impeachment hearing for President Temer

Energy:

Saudi Oil Min Al-Falih indicated OPEC and non-OPEC producers are on course to back an agreement extending the oil supply deal by a further nine months

Iran President Hassan Rouhani wins second term with 57% of the vote. (Note: Hard-liner Ebrahim Raisi, won 38% of the vote)

Economic Data

(TW) Taiwan Apr Export Orders Y/Y: 7.4% v 13.0%e

Fixed Income Issuance:

(NO) Norway sold NOK4.0B vs. NOK4.0B indicated in 6-month Bills; Avg Yield: 0.40% v 0.47% prior; Bid-to-cover: 3.01x v 3.55x prior

(SE) Sweden sold SEK5B in 2028 Bonds; Avg Yield: 0.7412% v 0.7511% prior; Bid-to-cover: 2.69x v 3.41x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [EuroStoxx50 flat at 3586, FTSE +0.4% at 7502, DAX +0.2% at 12657, CAC-40 +0.3% at 5338, IBEX-35 -0.3% at 10806, FTSE MIB -0.9% at 21381, SMI +0.4% at 10807, S&P 500 Futures +0.1%] Market Focal Points/Key Themes European indices trade mixed this morning with out performance in the UK FTSE, and weakness in the Italian FTSE MIB. The announced all stock merger of Clariant and Hunstman was the main headline this morning with shares of Clariant up over 9%. Else where the naming of Jan Jenisch as new CEO for LarfargeHolcim helped the stock rise over 6%. Shares of UCB are under pressure as the expected action date for EVENITY was delayed beyond M2017. Looking ahead to the US morning notable earnings include Booz Hamilton, Cheetah Mobile and Navios Maritime. Also on the look out for the formal confirmation of a CEO change at Ford.

Equities

Materials: [Clariant [CLN.CH] +9% (All stock merger with Huntsman), LafargeHolcim [LHN.CH] +6.2% (New CEO),

Financials: [Julius Baer [BAER.CH] +0.5% (AUM), Aegon [AGN] +7.4% (Divestment of some US businesses)

Technology: [Tele Columbus [TC1.DE] +2.2% (Earnings)]

Healthcare: [ Evotec [EVT.DE] +2.3% (Milestone payment from collaboration with Bayer), UCB [UCB.BE] -14% (Sees Osteoporosis Drug Delay on Heart Safety Concern)

Energy: [RWE [RWE.DE] +2.1% (Analyst upgrade), Petro Welt Tech [O2C.DE] -3.5% (Earnings)]

Speakers

Italy Stats Agency (ISTAT) 2017 Economic Forecasts: Raises 2017 GDP growth from 0.9% to 1.0% (as speculated)

Germany Finance Ministry: No completion of second Greece review and no clearance for next loan installment expected at this Eurogroup meeting in Brussels. Have three debt-relief scenarios on the table based upon Greek primary surplus and would be discussed by Eurogroup

France Fin Min Le Maire: France will respect deficit reduction commitments. Working group to present concrete ideas for developing Euro Zone; will look at investment projects

Austria Fin Min Schelling: Meeting on EU Financial Transaction tax (FTT) postponed until Jun 15th Eurogroup meeting. Cited that France's new finance minister asked for more time to review the issue because he just took office

Russia Econ Min Oreshkin: Could adjust macro economic forecasts in June if oil producing countries reach agreement on production cuts

Romania Central Bank Gov Isarescu stated that monetary and fiscal policies needed to be accommodative but urged prudence on policies. Fiscal stimulus would gradually decline

Iraq State Organization for Marketing of Oil (SOMO) chief Al-Amri: Iraq has made its OPEC production cut commitment and has announced its readiness to the OPEC cut agreement

Currencies

USD began the week inching higher following recent spat of softer economic data and political woes that sent it testing 6-month lows. Dealers noted that FOMC minutes would likely be the main event this week since they are expected to contain an extensive discussion of the Fed's balance sheet strategy

EUR/USD lower by 0.3% in quiet trading. Dealers noted that encouraging Euro Zone economic activity, the prospect of the ECB announcing a path to more tapering of its asset purchase program at the June ECB meeting, and improving capital inflows would continue to underpin the EUR currency

GBP/USD was lower after a spat of recent polls predicted a narrower-than-expected win for PM May in June election. Some of the items in the recent Tory platform manifesto cited for the narrowing of the gap. GBP/USD lower by almost 0.5% arounf 1.2975 area

Fixed Income

Bund futurestrade at 161.12 down 23 ticks, in the middle of last week's trading range. Resistance lies near the April 27th high of 162.01 level followed by 163.68. A break of 160.01 support level could see lows target 159.01 followed by 157.50.

Gilt futurestrade at 128.33 higher by 14 ticks, as strong demand for gilts suggest the UK can borrow more. Last week's rally respected both the 129.00 handle and the 129.14 April 18th high. Price still finds key support at the 127.52 support level. An acceleration lower could test the 126.74 region. Resistance stands at 128.51 then 129.14 followed by 132.80.

Monday's liquidity report showed Friday's excess liquidity dropped lower to €1.6380T a decline of €8B from €1.6460T prior. Use of the marginal lending facility rose to €216M from €137M prior.

Corporate issuancesaw $37.05B issued last week, ahead of last week's forecast of $30B. For the week ahead, analysts eye issuance to come in around $35B. - In Euro denominated issuance €53.7B came to market last week via 41 issuers and 53 tranches.

Looking Ahead

(PT) Portugal Mar Current Account: No est v €0.0B prior - 06:00 (IL) Israel to sell 2019, 2020, 2021, 2027 and 2047 bonds

06:00 (RO) Romania to sell1.35% 2019 Bonds

06:00 (IL) Israel Apr Unemployment Rate: No est v 4.2% prior

06:00 (IE) Ireland Apr PPI M/M: No est v 0.0% prior; Y/Y: No est v 2.1% prior

06:45 (US) Daily Libor Fixing - 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

07:25 (BR) Brazil Central Bank Weekly Economists Survey - 08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Apr Chicago Fed National Activity Index: 0.10e v 0.08 prior

08:50 (FR) France Debt Agency (AFT) to sell combined €5.4-6.6B in 3-month, 6-month and 12-month BTF Bills

09:00 (MX) Mexico Q1 Final GDP Q/Q: 0.6%e v 0.6% prelim; Y/Y: 2.7%e v 2.7% prelim, Nominal GDP Y/Y: 8.8%e v 8.7% prior

09:00 (MX) Mexico Mar IGAE Economic Activity Index (Monthly GDP) Y/Y: 4.2%e v 1.0% prior

09:00 (RU) Russia Apr Unemployment Rate: 5.5%e v 5.4% prior

09:00 (RU) Russia Apr Real Retail Sales M/M: -0.9%e v +7.9% prior; Y/Y: -0.3%e v -0.4% prior

09:00 (CN) China Apr Conference Board Leading Economic Index: No est v 0.9 prior

09:00 (EU) EU/Euro-Area Finance Ministers (Eurogroup) meet in Brussels

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

11:30 (US) Treasury to sell 3-Month and 6-month Bills

13:30 (AU) RBA's Debelle speech in Basel

15:00 (MX) Mexico Citibanamex Survey of Economists

16:00 (US) Weekly Crop Progress Report

GOLD Ready for another leg higher.

Gold seems on its way back up. Hourly support is located at 1246 (18/05/2017 low). Stronger support is given at 1195 (10/03/2017 low). Expected to show further upside pressures.

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1392 (17/03/2014) is necessary ton confirm it, A major support can be found at 1045 (05/02/2010 low).

SILVER Short-term bullish.

Silver increases. Strong support is given at 15.63 (20/12/2017 low). Closest support is given at 16.20 (04/05/2017 low). Key resistance is given at a distance at 19.00 (09/11/2017 high). Expected ton increase until 50% Fibonacci retracement around 17.30.

In the long-term, the death cross indicates that further downsides are very likely. Resistance is located at 25.11 (28/08/2013 high). Strong support can be found at 11.75 (20/04/2009).

CRUDE OIL Strong demand.

Crude oil continues to bounce on shortsqueeze move. Support is given at a distance 43.76 (05/05/2017 low). Demand is very strong and the road is wide-open for further increase.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. Strong support lies at 24.82 (13/11/2002) while resistance can now be found at 55.24 (03/01/2017 high).

EUR/JPY Sideways price action.

EUR/JPY is trading mixed. Hourly support is given at 122.56 (18/05/2017 low). Major support is given at 114.90 (18/04/2017low). Expected to see further renewed buying pressures towards 126.00.

In the longer term, the technical structure validates a medium-term succession of lower highs and lower lows. As a result, the resistance at 149.78 (08/12/2014 high) has likely marked the end of the rise that started in July 2012. Strong support at 94.12 (24/07/2012 low) looks nonetheless far away.

EUR/GBP Strengthening.

EUR/GBP is strengthening. The technical has turned positive since the pair has broken resistance at 0.8530 (25/04/2017 low). Support can be found at 0.8304 (05/12/2017 low). Expected to see further consolidation around 0.8600.

In the long-term, the pair has largely recovered from recent lows in 2015. The technical structure suggests a growing upside momentum. The pair is trading above from its 200 DMA. Strong resistance can be found at 0.9500 psychological level.

EUR/CHF Continued weakness.

EUR/CHF is getting lower. Despite the sharp increase and the recent bullish breakout which was very likely psychological, we believe that the medium-term pattern suggests us to see at some point renewed bearish pressures towards key support that can be found at 1.0623 (24/06/2016 low).

In the longer term, the technical structure is mixed. Resistance can be found at 1.1200 (04/02/2015 high). Yet,the ECB's QE programme is likely to cause persistent selling pressures on the euro, which should weigh on EUR/CHF. Supports can be found at 1.0184 (28/01/2015 low) and 1.0082 (27/01/2015 low).

The EUR/USD broke above 1.1200 level on Friday and it is normal that we are seeing the retracement at this point. Remember, always mark yesterday's high & low. Those were the definitive points where buyers or sellers came in the day before. Usually we see a retest of those points. Because the pair is in uptrend it could spike from the bullish POC 1.1155-70 (trend line, ATR pivot, D L3, 38.2) targeting 1.1211 followed by 1.1250-65. The ATR of EUR/USD is not that high, so pay attention to levels and POC zone. Ideally 1.1120 should hold for bullish scenario to be valid.

The US dollar extended its recent losses on Friday amid continued uncertainty on the US political front and some dovish comments from St. Louis Fed President James Bullard. The policymaker acknowledged the elephant in the room, indicating that US economic data have been relatively weak since the March FOMC meeting. He added this suggests that another two rate hikes this year as currently indicated by the 'dot plot', may be overly aggressive.

Even though Bullard is a well-known dove and a non-voter this year, his comments still raise doubts as to whether a June rate hike is indeed as likely as market pricing currently suggests (78% according to the Fed funds futures). Therefore, we believe that the focus will now turn to the rest of the Fed speakers this week, as well as the FOMC minutes on Wednesday, as investors try to gauge whether that probability is realistic, or overly optimistic. In that respect, Fed Board Governor Lael Brainard's comments tomorrow could prove critical for market expectations, as she is a permanent FOMC voting member and her views tend to be in line with the thinking of most of the Committee.

As for the dollar, we think that it could remain on the back foot, at least until Brainard speaks tomorrow. EUR/USD continued to gain on Friday, breaking above the resistance (now turned into support) barrier of 1.1170 (S1), before finding fresh sell orders near the 1.1240 (R1) territory and subsequently retreating somewhat. The price structure on the 4-hour chart still suggests a short-term uptrend and as such, we would expect the bulls to seize control again soon and aim for another test near 1.1240 (R1). A clear break above that level could set the stage for extensions towards the next resistance of 1.1300 (R2).

Brexit Secretary warns UK will abandon Brexit talks if EU demands divorce bill

The British pound opened with a modest negative gap this week, following comments from Brexit Secretary David Davis on Sunday. Davis warned the UK will walk out of Brexit talks should the EU continue to demand EUR 100 billion as a divorce bill, and added he regards even 'EUR 1 billion as a lot of money'. Considering that the issue of the divorce bill is expected to be the first item on the Brexit negotiating agenda, Davis's uncompromising remarks may have been interpreted as raising the likelihood for no deal and thus, a 'hard Brexit'.

Moving forward, we think that sterling will probably remain very sensitive to political developments ahead of the General Election. The latest election opinion polls show the Conservatives securing 47% of the total vote. In our view, fresh polls that show the Conservatives extending their lead could prove positive for the pound, on speculation that Theresa May will be able to negotiate a better Brexit deal with the increased domestic influence she will gain. On the other hand, polls that show the party gaining less than the anticipated 47% may prove negative for the currency. Finally, we think that incoming polls are likely to move the pound more aggressively than before, considering that polls just two weeks before Election Day may bear more significance in the eyes of investors.

GBP/USD traded higher on Friday, breaking above the resistance (now turned into support) level of 1.3000 (S1) to hit resistance at 1.3040 (R1). The pair opened with a negative gap this week below 1.3000 (S1), but recovered some of its losses in the following hours and at the time of writing, it is trading marginally above that level. The short-term bias is to the sideways in our view. Bearing in mind that Cable has been range-bound between 1.2850 and 1.3040 (R1) since the 27th of April, we think that the pair is likely to remain near key technical territories and wait for fresh developments surrounding the election. New polls that show the Conservatives extending their lead could cause the rate to surge and aim for another test at 1.3040 (R1), where a decisive break could pave for the way for the 1.3100 (R2) barrier.

Today's highlights:

During the European day, the economic calendar is empty, with no major indicators due to be released.

We have three speakers on the agenda: Philadelphia Fed President Patrick Harker, Minneapolis Fed President Neel Kashkari, and ECB Executive Board member Jens Weidman. Following Bullard's aforementioned comments, we think that market participants are likely focus on Harker and Kashkari, considering that both are FOMC voting members this year.

As for the rest of the week, on Tuesday we get Eurozone's preliminary manufacturing and services PMIs as well as Germany's Ifo survey, all for May. On Wednesday, all eyes will be on the Bank of Canada rate decision. The forecast is for the Bank to remain on hold once again. We think that the tone of the meeting statement is likely to be even more cautious than previously, following the recent tariffs from the US on Canada. We also get the minutes of the FOMC's May policy gathering. On Thursday, the highly anticipated meeting between major OPEC and non-OPEC oil producers will take place in Vienna.

Finally on Friday, Japan will release its CPI data for April, while from the US, we will get durable goods orders for the same month and the 2nd estimate of Q1 GDP.

EUR/USD

Support: 1.1170 (S1), 1.1100 (S2), 1.1070 (S3)

Resistance: 1.1240 (R1), 1.1300 (R2), 1.1340 (R3)

GBP/USD

Support: 1.3000 (S1), 1.2950 (S2), 1.2900 (S3)

Resistance: 1.3040 (R1), 1.3100 (R2), 1.3150 (R3)

The Aussie shows strong hesitation at 0.7467 barrier (daily Kijun-sen/Fibo 61.8% of 0.7554/0.7327 downleg/bear-trendline off 0.7747) where last week's rally was capped. Monday's action is so far shaped in Doji, capped by bear-trendline and supported by 20SMA and showing indecision, however, risk of fresh weakness exists on bearish daily studies and revrsal of slow stochastic from overbought territory. Extension below 20SMA (0.7434) would be seen as initial signal of weakness, with loss of 10SMA / daily Tenkan-sen at 0.7400 and extension below 4-hr cloud (spanned between 0.7402 and 0.7385) to signal reversal from 0.7467 and likely end of rally from 0.7327 (09 May low) which marks correction of larger downtrend from 0.7747. Alternatively, sustained break above 0.7467 pivot would signal fresh extension of bull-leg from 0.7327 and expose upper targets at 0.7500 and 0.7554.

Res: 0.7467, 0.7500, 0.7544, 0.7554
Sup: 0.7434, 0.7404, 0.7385, 0.7360

USD/CHF Wide-open towards support at 0.9550.

USD/CHF continues to push lower since the pair broke support located at 0.9814 (27/03/2017 low). Strong resistance is given at 1.0107 (10/04/2017 high). Expected to continue going lower.

In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015

USD/CAD Wide-open for further decline.

USD/CAD keeps on weakening since the pair reached 1.3800. Hourly support can be found at 1.3411 (24/04/2017 high) then 1.3353 (20/01/2017 high). Expected to show continued bearish pressures.

In the longer term, there is a golden cross with the 50 dma crossing the 200 dma indicating further upside pressures. Strong resistance is given at 1.4690 (22/01/2016 high). Long-term support can be found at 1.2461 (16/03/2015 low).

AUD/USD Monitoring symmetrical triangle.

AUD/USD is pushing higher since the pair reached hourly support at 0.7329 (09/05/2017 low). As long as prices remain below the resistance at 0.7608 (17/04/2017 high), the shortterm technical structure is negative. Expected to show renewed weakness.

In the long-term, we are waiting for further signs that the current downtrend is ending. Key supports stand at 0.6009 (31/10/2008 low) . A break of the key resistance at 0.8295 (15/01/2015 high) is needed to invalidate our long-term bearish view.

'With the pair rallying to close higher the past week, more strength is expected in the new week.' – FXTechstrategy (based on investing.com)

Pair's outlook

On Monday morning, the common European currency had slightly retreated against the US Dollar, as the currency exchange rate retreated down to the combined support of the 61.80% Fibonacci retracement level at 1.1190 and the monthly R2 at 1.1187. It is most likely that the currency pair remains near the support cluster, as it has surged majorly during the previous week, and a period of consolidation is to be expected. However, afterwards the pair is most likely to continue the surge.

Traders' sentiment

SWFX traders remain bearish in regard to the Euro, as 60% of open positions are short. Meanwhile, 53% of trader set up orders are to buy.

'Bulls would be eyeing for a follow through momentum beyond 1.3040-50 immediate hurdle, above which the pair is likely to aim towards reclaiming the 1.3100 handle and head towards testing 1.3125-30 resistance area, marking 38.2% Fibonacci retracement level of post-Brexit downslide.' – Haresh Menghani (based on FX Street)

Pair's outlook

On Friday, GBP/USD breached the upper Bollinger band and closed as high as the 1.3042 mark. The Pound opened lower today and has since demonstrated strong downside momentum, dashing through the weekly PP at 1.2985. The next support that the pair is gradually approaching to is formed by the 20-day SMA and the weekly S1 circa 1.2925. This level, however, might be considered unreachable in this trading session, setting 1.294 as the ultimate low. In case the Pound manages to reverse to the upside, the upper Bollinger band should limit the currency from trading higher. May's speech at 18:00 GMT, however, may introduce some corrections in the pair's movement.

Traders' sentiment

Market sentiment remains bearish, as 51% of open positions are short. Meanwhile, 60% of pending orders are to buy the Pound.

'USD/JPY-slightly bearish. We expect the pair may move towards 110.80.' – Fullerton Markets (based on Investing.com)

Pair's outlook

This trading week has started with the US Dollar appreciating slightly against the Yen. The closest upper limit is set by the 55-day SMA at 111.72. The given resistance was strong enough not to pass the pair through in the previous two sessions; thus, a breakout might be regarded as a bullish sign, leading the Greenback towards the 20-day SMA at 112.37. Today, it might be expected that the pair remains confined within the bounds of the 55-day SMA and the monthly PP. However, it is yet to be seen if the close occurs in the red or green area.

Traders' sentiment

Traders have not changed their bearish outlook in this trading session, as 57% of open positions are short. However, 59% of set up orders are to buy the US Dollar.